Western Union – Remittances help accelerate economic change in Cuba

As the Cuban economy flirts with market-oriented changes, remittances
from the United States have been helping fuel private enterprise on the
island and at least one U.S. company is already encouraging that trend.

Although U.S. investment is still prohibited in Cuba, with the exception
of possible U.S. participation in projects to improve Cuba’s telecom and
Internet system, remittances sent via Western Union are helping to fund
micro-businesses from cafes to carpentry workshops.

“Someone receiving a remittance of $5,000, for example, from the United
States can go and start a business or buy a small apartment,” said
Odilon Almeida, Western Union’s president for the Americas and the
European Union. “I think remittances are changing Cuba faster than is
perceived today.”

Unlike other destinations where remittances are used primarily for
household expenses, the main motivation for sending money to the island
via Western Union now is to help start or expand small private
businesses, according to the Englewood, CO-based company.

Cuba is in the process of eliminating hundreds of thousands of workers
from state payrolls and now allows self-employment in 201 categories.
There are nearly 500,000 Cuban cuentapropistas, or those who work for
themselves, and funds from U.S. relatives have been a lifeline in
getting small businesses off the ground.

As part of the effort, Cuba also is turning some businesses, such as
state-run barber shops, beauty salons and some restaurants, over to
employees to run as cooperatives.

It’s difficult to assess how much money is being sent annually to Cuba
because it’s a highly informal market. Visitors often carry cash to
their families or hire “mules” who ferry money and goods to Cuba on
aregular basis.

“Today, in reality, our main competition is the black market,” said
Almeida. But he said Western Union imposes formality and controls on the
money-transfer business. “We know how much money is going; we know who
is sending,” he said.

But Western Union declined to quantify the amount of Cuban money
transfers it handles annually or the increase it has seen since new
rules to allow more remittances have gone into effect.

Emilio Morales, president of The Havana Consulting Group, estimates
overall remittances sent to the island from the United States in 2013 at
$2.8 billion and 2014 remittances at $3.13 billion. In 2015, he is
projecting an 8.6 percent increase in remittances to $3.99 billion.

Western Union, which began as a telegraph company in 1851, completed 255
million consumer-to-consumer transactions worldwide last year and
transferred $85 billion between consumers.

The Obama administration has progressively liberalized remittances
rules. In 2009, all restrictions on family travel and family remittances
to Cuba were lifted. Then in 2011, new rules allowed any American to
send $500 per quarter to qualified Cubans on the island.

As part of the opening toward Cuba that President Barack Obama announced
in December, the amount of non-family remittances that could be sent
increased from $500 per quarter to $2,000 quarterly. When the limits
were increased, Almeida said, “individuals began to send more” but he
declined to say how much more.

Under a special affidavit from the Office of Foreign Assets Control, the
company began serving Cuba in 1995 with a network of only 36 locations.
In the beginning, it only sent money to Cuba from Florida. The company
wasn’t active in Cuba before the 1959 Revolution, Almeida said.

Now Western Union has a network of 420 offices across the island. Using
the infrastructure of Fincimex, the financial services subsidiary of
Cuban conglomerate Cimex, Western Union now facilitates money transfers
to 16 provinces and 168 municipalities at locations ranging from
exchange houses and gas stations to government-owned Tiendas Panamericanas.

“We had to make a significant investment in systems to track all the
transactions in the way the [U.S.] government wanted,” said Almeida. “It
is not easy for someone to enter this market.”

While Florida still accounts for more than two-thirds of the volume of
Western Union money transfers to Cuba, remittances are now sent to the
island from all 50 states and Puerto Rico.

But, Almeida said, Western Union knows that the Cuban diaspora has
spread around the globe and is sending money to the island from Spain,
Panama, Mexico and other countries via other channels. It wants to
facilitate those money transfers as well, but its current license only
allows it to send remittances to Cuba from the United States and Puerto
Rico. The company has formally requested the U.S. government to allow it
to handle remittances to Cuba from foreign countries, said Almeida.

“I firmly believe remittances can accelerate tremendously the pace of
change in Cuba and we could accelerate that much more if we could make
transfers not only from the United States but also from the diaspora in
other countries,” Almeida said.

When a customer in Hialeah or Miami decides to send money to Cuba and
goes to a Western Union location, Almeida said, recipients can have
their money in a matter of minutes. Sometimes the customer is still on
the phone telling the recipient that money has been sent and the number
to claim it when the transfer arrives.

“The majority of the money is picked up on the same day; it is a very
instant thing,” said Almeida. “The money goes straight to the household
there; it is not touched by the government.”

Western Union uses the Cuban Convertible Peso (CUC) rate of 1-1 for the
remittances it handles.

What enables the system to work efficiently is that Western Union can
piggyback on the infrastructure of Fincimex, the largest financial
services company in Cuba. “The signing of Fincimex was critical. We can
link their infrastructure to our infrastructure. We could never do this
without Fincimex,” Almeida said.

The sender pays a fee that varies depending on the amount of money sent.
Western Union takes its profit from the fee and also pays commissions to
its local agent and to Fincimex. “We never charge the receiver,” Almeida
said.

Who is getting remittances in Cuba?

? A majority of Cubans who receive remittances via Western Union say
they want to expand or establish micro-businesses.

? The remittances are being used to set up businesses primarily in
these areas: food, clothing, construction, carpentry, artisan,
electronics, agriculture, tourist accommodations and cafes.

? U.S. remittances now reach 62 percent of Cuban households.

? Cubans have expectations that their families and loved ones aboard
will help finance their businesses through remittances.

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